Ammonia Boom in North America

US is all set to become a key player in petrochemicals and bulk agro chemicals. Since natural gas accounts for over 50% of the manufacturing costs for nitrogen fertilizer, cheap natural gas is a driving factor to build new nitrogen fertilizer plants and revamp existing ammonia facilities. US ammonia, Urea and UAN imports are seeing a decline in imports making it possibly to be an exporter to the emerging economies of Asia Pacific and South America taking away the opportunities of the Middle East producers. Trinidad which produces mainly liquid ammonia for the US market should be the worst affected among all. The key factors that have contributed to this low price are

Increase in NA shale gas reserves and production

Greater drilling rig and well efficiencies not like conventional oil rigs

Attractive economics of NGLs supporting extraction of associated gas

Storage capacity constraints 70billions cu ft

Producers are able to leverage acreage positions in oil and natural gas liquids rich areas, to the extent possible, while gas price remain low. Gas production is expected to continue to rise despite this shift in resources away from dry plays. Gas prices are expected to remain range bound between $3-$5. Significant Gas Resource become economical above $4. There is also drastic response from the remaining sectors of the market especially from the US demand sectors including industrial and power, gas market share on other fuels.

LNG exports play a key role in balancing the production potential. But the current US administration is holding on LNG plant approvals to maintain sustained low energy cost in the US. Without LNG, we would likely have to see lower dry gas directed activity. Switch to Pad drilling in Oil and Gas Plays also push drill times lower which in turn increases the rig output.

The likelihood of increased planting of corn acres is high and even if the drought goes on in 2013, only the bioethanol producers revenues will probably increase. Also along the USGC many refineries need hydrogen to convert barrel bottom residue to light fractions. H2 by product from many new ethane crackers could be available. This trend could possibly lead to hydrogen oversupply , making hydrogen availability at competitive prices as feedstock for ammonia or methanol production.

Trends

Major Ammonia projects - Expansions (Existing Producers)

We present here a compressive list of greenfield, brownfield and debottleneck projects planned in North America mainly in the US. Existing producers are planning to add over 7.5 million tones of new ammonia capacity in the next five years.

If all these projects are built, it would all add up to roughly 12 million tones annually of new ammonia capacity. However NA imports only about 10 million tones of ammonia.

Trinidad and Tobago

When the US natural gas prices were higher, Trinidad and Tobago was the winner among the other nations that exported ammonia to the US like Venezuela, Canada, Russia and Ukraine. The rising natural gas prices during 2005 greatly favored Trinidad. Ref: http://www.ers.usda.gov/media/198815/wrs0702_1_.pdf

But now Trinidad ammonia plants are already running short of natural gas which has affected the ammonia production in the country. Due to this shortage the gas, there is a upward pressure for natural gas prices. Except one urea plant by PCS Nitrogen, all ammonia plants were exporting ammonia as liquid and mainly catering to US needs. With surplus ammonia scenario in US, there will be pressure on free market liquid ammonia prices and Trinidad will find it very difficult to complete with Middle East producers. As a result Trinidad has already started eyeing on other potential markets like the Latin America, Europe, Asian and Caribbean. It is going to be an interesting dynamics! The countries that enjoyed the benefits of being the supplier to US are now going to face an awkward situation of seeing US as a competitor to them.